March 11, 2002 5:15 AM PST
Pension funds to vote against HP merger
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The California Public Employees' Retirement System, or CalPERS, said Friday it plans to vote its 7.6 million shares of HP stock against the deal.
The pension fund's stake represents only about half of 1 percent of HP's outstanding shares. But its announcement is significant because it represents the first public confirmation that not all institutional investors will be swayed by advice they received from Institutional Shareholder Services. ISS on Tuesday recommended to its institutional investor clients that they vote in favor of the $22 billion merger.
Meanwhile, the Ontario Teacher's Pension Plan Board, which holds 1.46 million shares of HP stock, also said it would vote against the deal.
"The proposed merger lacks strategic merit and increases HP's exposure to a troubled commodity PC hardware business," plan executives said in statement on their Web site. "The proposed merger will significantly dilute Hewlett-Packard's shareholder's interests in a profitable imaging and printing business."
The decision by CalPERS, which is an ISS client, comes just days after HP received the good news from ISS. The organization's recommendation goes out to roughly 23 percent of HP's institutional investors, but clients are not obligated to heed ISS's advice.
"We subscribe to the ISS service and looked at their analysis, but where we might differ in our reports is we were more concerned with the premium paid for Compaq than (ISS) was," said Pat Macht, a CalPERS spokeswoman. "For us, the risks are not worth it for our portfolio."
CalPERS's announcement also throws a bit of cold water onto a decision by the Federal Trade Commission this week to approve the merger.
"We are disappointed," said HP spokeswoman Rebeca Robboy. "Their decision fails to take into account the changes under way in the technology industry and the risks of standing still. CalPERS is only one shareholder, and we believe the good judgment of the rest of our shareholders will prevail and the merger will be approved."
Needham analyst Andrew Scott said Calpers' decision is likely to have more impact on the votes of individual investors than on those of other institutions.
"In a political battle, campaigning matters, especially when you are trying to sway individual investors' opinions," Scott said.
HP shareholders are scheduled to vote on the merger March 19, followed by Compaq on March 20. The deal is under intense pressure, with dissident HP director Walter Hewlett spearheading a campaign to undo the merger plans.
"We think it's important to note CalPERS pointed to the significant integration risks as one of its determining factors to vote against the deal," a representative for Hewlett said. "We are delighted that CalPERS, after a thorough analysis, has decided to vote their shares against the transaction."
The pension fund cited several other reasons for its decision, including negative financial consequences of the merger and the possibility that HP could lose its focus on its core strengths as it seeks to merge its businesses.
Despite its reputation as a shareholder activist, CalPERS said it has no intention of launching a campaign to get other shareholders to take similar action.
"What we are reporting is what is in the best interest for our portfolio," Macht said. "We are not advocating what other investors should do."
CalPERS also will vote its 6.5 million Compaq shares against the deal. Other Compaq shareholders, however, are widely expected to favor the deal, given the price they will receive for their shares.
Although CalPERS plans to vote against the deal, it noted that its decision should not be perceived as a vote of no confidence in HP Chief Executive Carly Fiorina or in HP's management.
"In the final analysis, this is not a referendum on HP or its CEO, Carly Fiorina, but it's a decision based solely on the merits of the deal for this portfolio," Macht said. "CalPERS believes it is in the best interest that...HP be a best-of-breed company in the printing and imaging business while strengthening its storage, service and high-end consulting businesses."
News.com's Ian Fried contributed to this report.